The impact of Covid-19 on the India Warehousing Industry: Ken Research

The government decided to extend the lockdown to the 3rd of May, and this period has brought out the incapacity of supply chains in India to deal with a crisis situation. The warehousing industry is facing the problems of lack of availability of labour, lack of demand from the non-essential goods, and an overall slowdown in growth prospects. In such a scenario, the investments are expected to take a hit and so are the revenues.

Overall Economic Impact on India

FY21 Growth Pegged to be the Slowest Since LPG Reforms in 1991

The pandemic has struck at a particularly unfortunate time when India’s economy is slowing down. Growth in FY20 is estimated to be around 4.8%-5%, and according to the South Asia Economic Focus report by the World Bank, the economy is expected to grow 1.5%-2.8% in FY21. In fact, multiple international bodies have forecasted a slowdown in the growth of the Indian economy. During the lockdown period, a less than quarter of the Indian economy is operational. 53% of Indian businesses have indicated an impact of COVID-19 on business operations, according to a FICCI survey. Around 42% of the respondents said that it could take up to three months for normalcy to return, after the lifting of the lockdown. The major sectors impacted are transport, hospitality, and real estate.

Foreign Trade to Take a Massive Hit

Exports in the country are expected to suffer massively as demand dies in trading partners of India who are the hardest hit by the coronavirus, countries such as China, Spain, Italy, Japan, South Korea, the US, and Iran. Exports to these countries are now limited to only essential commodities with exports contracting by 34.6% in March 2020. China reopened its manufacturing units after temporarily shutting them down, providing a bit of relief to industries that are dependent on the country for imports of raw materials.

COVID 19 Impact Warehousing Industry

Lockdown’s Impact on Warehousing Sector

Lockdown to Delay Further Investments; Leaving Many Warehouses Underutilised

Investments to Dry Out

According to Knight Frank Research, over $ 6 billion have been invested in the warehousing sector by PE funds, pension funds, and REITs, since 2017. The investment was only expected to increase in FY21 prior to the pandemic, with the warehousing sector seen as something of a diamond in the rough of the real estate sector in India. With the country reeling from the lockdown the investment prospects are looking bleak. Institutional investors are likely to monitor the situation and assess the profitability of their current portfolio before making further commitments. The ban on construction activities, the lack of availability of manpower, and imported construction materials means that the market may still be dampened even after the lifting of the lockdown. The resultant loss in business may force domestic and foreign institutional funds to lend at 19-20% post COVID from the current 15-17% to cover the same. This will undoubtedly adversely affect the capacity addition in the warehousing market, with the rate expected to behalf during the period FY19-FY24 as compared to FY14-FY19.

Revenue Realisation to Take Major Hit

The government only allowing the transportation and logistics services related to the provision of essential commodities is forcing many warehouses to be underutilized. Occupancy rates are the major factor of revenue the realisation of a warehouse. With the ban of storage of non-essential commodities, the revenue realization of warehouses is expected to undergo a major hit. The government has declared that logistics services for non-essential goods and e-commerce will be allowed from 20th April but the situation is not expected to get better till H2 FY21, due to the many factors like low EXIM, and slowdown in manufacturing immediately post the lockdown.

Short Term Impact on Business in Warehousing Industry

Industry Anticipated to Feel Stressed till Manufacturing Picks Up

The warehousing industry is anticipated to fuel the stress of the lockdown till the time the domestic manufacturing is not returned to pre-lockdown levels. The warehousing industry is expected to contract by around 15% in FY21 due to lack of demand in H1 FY21, and the slow pickup of non-essential items sectors such as automobiles and auto ancillary, cement, consumer durables, and engineering. The industry will also be impacted by the reduction in the foreign trade, especially in Indian exports, and the slow return of normalcy of EXIM levels. With the lockdown being partially lifted on the 20th of April, and trucking and logistics services being permitted for all commodities since 30th March, the warehousing industry is expected to reduce its losses a bit during this period.

The situation is anticipated to get better with stimulus packages by the government, regaining of consumption demand at large due to positive consumer outlook, and restoring of manufacturing production to pre-lockdown levels. The industry is expected to pull off a moderate recovery in H2 FY21, with regaining of growth starting in FY22.

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